Forex scalping is a trading approach that involves buying or selling currency pair and holding a position for only a short duration of time. When scalping, trader will open positions frequently looking for small profit. Due to the fact that scalping looks for profit of only few pips, higher leverage is typically used. Trade will be usually held for only few seconds to minutes.
Scalping trader will typically prefer 1 to 5 minute chart to time his entry. Scalping approach is most suitable for volatile and liquid currency pairs in forex. Trading cost are major factor. Therefore most of the scalpers prefer major currency pairs traded ECN brokers with interbank spreads.
Why scalp in forex Experiencing the small winning trade many times during the day is extremely rewarding. It never gets old. Scalping is one of the most thrilling approaches to forex trading. Higher leverage can be used and profits can be added to balance rapidly. Correctly employed money management will keep risk in check. Forex is the most suitable scalping market in existence. Low trading costs are coupled with extreme liquidity and volatility.
Trading time suitable for scalping Even though scalping positions are opened frequently, you will not always be in trade. Quiet market is unsuitable for this trading method. Majority of traders will prefer volatile times of the day or news releases that will cause the market to move rapidly. This doesn't apply for certain scalping robots that can still trade during quiet market ( trade, hold or build position). Scalping systems that are able to trade around the clock should always be automatized. Manually trading them would distort results, as each human being needs to rest.
Trading instruments suitable for scalping
Scalping can be effectively done only on highly volatile and liquid instruments. Trading costs must be as low as possible. High spread and commision will with certainty kill profits of any trading system. Some brokers may even disallow scalping methods. For long term, profitable scalping, pick ECN/STP/NDD broker. Pick the broker that can offer interbank spreads and low commission. This ensures that the broker will be on your side (the more you profit the more he profits also).
Use of leverage To make reasonable gains from price fluctuations, traders will typically use higher leverage to enter the trade. This means that scalping trader will be able to control up to 200 times more capital than is his account equity.
Manual vs. automated scalping
Scalping manually is extremely demanding. When scalping, trader needs to be glued to the computer screen for prolonged periods of time, while maintaining focus and discipline. This approach typically requires to to trade only during the specific (volatile) hours of the day. Most of the aspiring scalpers therefore opt for scalping expert advisor, that will perform trading activity according to specified rule. This approach offer multiple advantages. Trading robot can never get tired. It can trade 24 hours a day, 5 days a week and it can simultaneously scan multiple currency pairs for trading signals.
Picking the right broker
Picking the right broker for your scalping is crucial element of scalping in forex. Make sure you pick the broker suitable for this endeavour. The broker must process your orders directly to its liquidity providers (STP/NDD/ECN) execution. This means that there is no conflict of interest. Such a broker will be typically able to provide low spreads for your trading. It is extremely important to keep your trading costs as low as you can, as they add up fast when scalping frequently. Good broker will be often able to return part of your commissions at the end of each month.
What is forex scalping: conclusion Scalping can be extremely exciting and financially rewarding trading approach. It is also mentally demanding, as it gives the trader only very little in room for an error. When he trades manually, he needs to focus.
Therefore most of the forex professionals will prefer using automated or semi automated robot (Scalping MT4 expert advisor) that will trade automatically according to the defined rules. Hours and hours of saved time can be used to pursue other ventures or improve existing trading approach (and adapt it according to market development). Scalping is not suitable for impulsive personalities with tendency to gamble.